Vietnam PNTR Status and WTO Accession: Issues and Implications for the United States

Vietnam PNTR Status and WTO Accession:
Issues and Implications for the United States
Updated January 9, 2007
Mark E. Manyin and William H. Cooper
Foreign Affairs, Defense, and Trade Division
Bernard A. Gelb
Resources, Science, and Industry Division

Vietnam PNTR Status and WTO Accession: Issues and
Implications for the United States
Summary
On December 8, 2006, the House passed legislation (212-184) to grant Vietnam
permanent normal trade relations (PNTR) status as part of a more comprehensive
trade bill (H.R. 6406). Pursuant to H.Res. 1100, the bill was then coupled with a tax-
extension bill (H.R. 6111) and sent to the Senate. The Senate passed the combined
bills on December 8 (79-9). On December 20, 2006, President Bush signed the bill
into law (P.L.109-432) and, per the law, proclaimed PNTR for Vietnam on December

29, 2006.

Congress considered PNTR in the context of Vietnam’s accession to the World
Trade Organization (WTO), which Vietnam joined in January 2007. Although
Congress had no direct role in Vietnam’s accession to the WTO, congressional
approval was necessary for the President to extend PNTR to Vietnam. The WTO
requires its members to extend unconditional most-favored-nation status (MFN),
called PNTR in the United States, in order to receive the full benefits of WTO
membership in their bilateral trade relations. Until PNTR was granted, the United
States had extended conditional NTR treatment to Vietnam under Title IV of the
Trade Act of 1974, as amended, which includes the so-called Jackson-Vanik
amendment (section 402). Title IV prohibits the President from granting certain
countries permanent NTR unless the country has met certain conditions.
Vietnam’s entry into the WTO does not establish any new obligations on the
part of the United States, only on the part of Vietnam. However, Vietnam’s WTO
accession requires the United States and Vietnam to adhere to WTO rules in their
bilateral trade relations, including not imposing unilateral measures, such as quotas
on textile imports, that have not been sanctioned by the WTO. Accession to the
WTO affords Vietnam the protection of the multilateral system of rules in its trade
relations with other WTO members, including the United States. It could help the
United States in that Vietnam would be obligated to apply WTO rules in its trade.
PNTR status from the United States provides Vietnam more predictability its
growing trade relations with the United States and sheds a legacy of the cold war.
For the United States, PNTR is another in a series of steps the United States has
taken in trade and foreign policy to normalize relations with Vietnam and place
distance between current relations and the Vietnam War.
During the congressional debate on PNTR, Members raised issues regarding the
conditions for Vietnam’s entry into the WTO, other issues pertaining to the U.S.-
Vietnam economic relationship, and other aspects of the overall U.S.-Vietnam
relationship.

Contents
Status of Vietnam PNTR Legislation...................................1
In troduction ......................................................1
Congress’ Role............................................2
Overview of U.S.- Vietnam Economic Relations.........................3
Implementation of the 2001 Bilateral Trade Agreement (BTA)..........3
Aggregate U.S.-Vietnam Trade...................................4
Trade in Apparel..............................................5
Intellectual Property Rights (IPR) ................................6
U.S. Bilateral Economic Assistance to Vietnam......................6
The Jackson-Vanik Amendment and Vietnam’s NTR Status................7
The Jackson-Vanik Amendment..................................7
Vietnam’s NTR Status .........................................8
Implications of PNTR on the U.S.-Vietnam Relationship...............8
The WTO Accession Process and Vietnam’s Status.......................9
The Accession Process..........................................9
Bilateral Agreement with the United States.........................11
Vietnam’s Accession Status.....................................14
Implications for the U.S.-Vietnam Trading Relationship..............15
Overall Significance of the Issues for Vietnam and the United States........15
U.S. Interests................................................15
Vietnam’s Interests...........................................16
Issues Regarding PNTR for Vietnam..................................18
Imports of Vietnamese Apparel..................................19
Human Rights and Religious Freedom............................21
Religious Freedom........................................22
The Vietnam Human Rights Act.............................23
Diplomatic and Military Issues..................................23
Prime Minister’s Trip to the United States.....................23
Security and Military Ties..................................24
POW/MIA Issues.............................................24
Legislation and Latest Developments.................................25
Appendix A. U.S. Imports of Apparel, Top 10 Countries of Origin..........26
Appendix B. U.S. Imports from Vietnam of Selected Apparel Items.........27
List of Tables
Table 1. U.S.-Vietnam Merchandise Trade .............................4
Table 2. Vietnam’s Growing Dependency on Trade......................17
Table 3. Vietnam’s Growing Dependency on Trade with the United States...18

Vietnam PNTR Status and WTO Accession:
Issues and Implications for the United
States
Status of Vietnam PNTR Legislation
On December 8, 2006, the House passed legislation (212-184) to grant Vietnam
permanent normal trade relations (PNTR) status as part of a more comprehensive
trade bill (H.R. 6406). Pursuant to H.Res. 1100, the bill was then coupled with a tax-
extension bill (H.R. 6111) and sent to the Senate. The Senate passed the combined
bills (79-9) on December 8. On December 20, 2006, President Bush signed the bill
into law (P.L.109-432) and, per the law, proclaimed PNTR for Vietnam on December
29, 2006. The legislation also codified a provision of the U.S.-Vietnam bilateral
agreement on Vietnam’s accession to the World Trade Organization (WTO)
authorizing the reimposition of quotas on imports of textiles or wearing apparel, if
Vietnam subsidizes those industries in violation of WTO rules.
Introduction
On November 7, 2006, Vietnam
completed the multilateral component
of its WTO membership bid when theVietnam Country Data
WTO General Council approved^P^o^pula^t^io^n:^{83.5 m}^illion^(J^u^l^y^{2005 es}^t.)
Vietnam’s accession package, the core^Me^dⁱ^aⁿ^A^g^e^:^{25.5 y}^ears^(U^.S^{. = 36.3 y}^ears⁾
of which is a combination of all the^Area:^{329,560 k}^m²⁽^s^lig^h^tly^lar^g^er^th^an^Ne^w
bilateral agreements that Vietnam^Mexⁱ^co)^Lⁱ^{fe E}^x^pectancy:^{70.61 y}^ears⁽²⁰⁰⁵⁾
negotiated. On November 28, 2006,^{Per Capita G}^D^P^:^{$3,000 (2005) pu}^rch^a^sⁱⁿ^g
Vietnam’s National Assembly ratified^pow^{er pari}^t^y^basⁱ^s
the deal. This move puts Vietnam on^{Current Account B}^a^lance:^-^$¹^.⁷^b^illioⁿ
track to join the WTO on January 11,⁽²⁰⁰⁵⁾

2007. ^Prim^{ary E}^x^{port Partners}^:^U^.^S^.^20.2%^,^Japan^13.6%^{, C}^hⁱⁿ^{a 9%}^{, A}^u^s^t^ralⁱ^a^7%⁽²⁰⁰⁴⁾

The United States was a major^Prim^{ary I}^m^port^P^a^rtners^:^C^hⁱⁿ^{a 13.7%}^,^T^aⁱ^w^an^11.3%^{, S}^o^u^t^h^K^o^{rea 10.8%}^{, Japan}
player in Vietnam’s accession process.^10.5%^{, S}ⁱⁿ^g^a^{pore 10.5%}⁽²⁰⁰⁴⁾
On May 31, 2006, U.S. and Vietnamese^M^a^{jor E}^x^{port I}^t^em^s^:^c^r^ud^e^oⁱ^l^,^c^l^o^t^hi^ng,
negotiators signed an agreement on the^f^oot^w^{ear, m}^a^riⁿ^e^produ^ct^s^D^oⁿ^g^:D^ol^l^a^{r E}^x^ch^an^{ge R}^a^te:^{15,855 (2005),}
conditions for Vietnam’s accession^{15,746 (2004), 15,510 (2003), 15,280 (2002).}
(entry) into the World Trade
Organization (WTO). The agreement^Source:^C^I^A^W^o^r^l^{d Fact}^book^,^J^a^nua^r^y¹⁰^,
was just one in a number of steps that^2006.

Vietnam had to take to complete its
quest to join the multilateral trade body.

However, the agreement with the United States was the last and, seemingly, the most
difficult of the bilateral agreements that Vietnam had to negotiate with twenty-eight
WTO members (including the European Union (EU) counting as one but representing
twenty-five countries).
Congress’ Role. The U.S. Congress has had no direct role in Vietnam’s
accession to the WTO. Congressional approval of the bilateral agreement was not
required for it to go into effect. The agreement itself does not establish any new
obligations on the part of the United States, only on the part of Vietnam. However,
Vietnam’s accession to the WTO will require the United States and Vietnam to
adhere to WTO rules in their bilateral trade relations, including not imposing
unilateral measures, such as quotas on textile imports, that have not been sanctioned
by the WTO.
On the other hand, the Congress had an indirect role to play. As has been the
case with U.S. trade relations with most of the other communist and former
communist states, U.S. trade relations with Vietnam had been governed by Title IV
of the Trade Act of 1974, as amended, which includes the so-called Jackson-Vanik
amendment (section 402). Title IV prohibits the President from granting those
countries most-favored-nation (MFN), called normal trade relations (NTR) in U.S.
law, unless the country has met certain conditions. However, the WTO requires its
members to extend unconditional MFN (permanent NTR (PNTR)) in order to receive
the benefits of WTO membership in their bilateral trade relations. In order for the
President to gain the authority to grant Vietnam unconditional MFN/ PNTR status,
Congress needed to enact legislation removing Vietnam from Title IV coverage.
During the congressional debate on PNTR Members raised issues regarding the
conditions for Vietnam’s entry into the WTO and other issues pertaining to the U.S.-
Vietnam economic relationship; in particular, the impact of increased imports from
Vietnam on the U.S. textile and apparel industry. Members also raised issues
pertaining to other aspects of the overall U.S.-Vietnam relationship, such as human
rights in Vietnam.
Accession to the WTO is important to Vietnam. It affords Vietnam the
protection of the multilateral system of rules in its trade relations with other WTO
members, including the United States. Vietnam will also participate in the Doha
Development Agenda (DDA) round of negotiations to expand the coverage of the
WTO. (Those negotiations have been suspended since July 2006.) PNTR from the
United States provides more predictability to Vietnam’s growing trade relations with
the United States and sheds a legacy of the cold war. For the United States, PNTR
is another in a series of steps the United States has taken in trade and foreign policy
to normalize relations with Vietnam and place distance between current relations and
the Vietnam War. It also places the United States on par with Vietnam’s other major
trading partners, all of whom have granted Vietnam unconditional MFN status.
Vietnam’s membership in the WTO requires it to conduct trade with the United
States under a system of multilateral accepted rules. Vietnam’s trading practices can
be subject to challenges by the United States and other WTO members under the
accepted dispute settlement mechanism.

This report provides a brief overview of the U.S.-Vietnam economic
relationship, an examination of the WTO accession process and Vietnam’s status, an
overview of the Jackson-Vanik amendment and PNTR, and an analysis of the issues
that were raised during congressional consideration of PNTR for Vietnam. This
report will not be updated.
Overview of U.S.- Vietnam Economic Relations
U.S.-Vietnam diplomatic and economic relations remained essentially frozen
for more than a decade after communist North Vietnam’s victory over U.S.-backed
South Vietnam in 1975. Relations took major steps forward in the mid-1990s,
particularly in 1995, when the two sides re-established formal diplomatic relations.
Since then, the normalization process has accelerated and bilateral ties have
expanded, particularly on the economic side of the relationship. The most important
step toward normalization since 1995 was the signing of a sweeping bilateral trade
agreement (BTA), which was approved by Congress and signed by President Bush
in 2001 (P.L. 107-052) Under the BTA, the United States and Vietnam extended
mutual MFN (NTR) to one another, that went into effect on December 10, 2001. In
return, Hanoi agreed to a range of trade liberalization measures and market-oriented
reforms. The climate in trade relations between Hanoi and Washington has sobered
considerably since the heady days after the BTA was signed, in part because of
difficult bilateral negotiations over the terms of Vietnam’s accession to the World
Trade Organization (WTO) and anti-dumping duties the United States has leveled
against imports of Vietnamese shrimp and catfish.
Implementation of the 2001 Bilateral Trade Agreement (BTA)
In general, since the BTA was signed in 2001, U.S. trade officials have praised
Vietnam’s implementation of the agreement. As discussed below, in retrospect,
Vietnam’s contentious and prolonged debate over whether to sign the BTA was
watershed event that helped break the logjam that for years had stalled economic
policymaking. The decision to sign the BTA appears to have fashioned a new
consensus in favor of a new economic reformist push. In short order after signing the
BTA, the government enacted a series of measures, including passing a new
Enterprise Law, passing constitutional amendment giving legal status to the private
sector, reducing red tape, creating unprecedented transparency rules for prior
publication of new rules and regulations, and, for the first time, giving party members
the green light to engage in private business. Adhering to the BTA’s implementation
deadlines and achieving the government’s goal of joining the WTO have helped
galvanize the Vietnamese bureaucracy toward enacting many of these and other steps.
Some U.S. industry officials have expressed concern that the government has
not met deadlines to implement in law and/or in practice some of concessions,
particularly in the services sector. Many of these critics, however, tend to accept the
argument that the slippages often are due more to weak capacity than to protectionist
intentions, and in 2005 Vietnam passed more than 20 laws and regulations that
belatedly address some of these concerns. The belief that Hanoi generally is
attempting to comply with its BTA obligations may explain why the Bush

Administration appears not to have criticized harshly Vietnam in areas where
implementation has been delayed or incomplete, with the exception of intellectual
property rights (see below).
Aggregate U.S.-Vietnam Trade
From 2001 to 2005, bilateral trade has more than quintupled from $1.4 billion
to over $7.6 billion (see Table 1). Almost all of the increase in trade since the BTA
went into effect has been from increased U.S. imports of mainly apparel products
from Vietnam, which rose from just over $1 billion in 2001 to over $6.5 billion four
years later. The United States is now Vietnam’s largest export market, and according
to one study, U.S. firms constitute the single-largest source of foreign direct
investment (FDI) in Vietnam. U.S. FDI has increased by an average of 27 percent
a year from 2002 through 2004, compared to just around 3 percent a year from 1996
to 2001.¹ Vietnam ranks 38^th as a source of U.S. imports and 58^th as a U.S. export
market.
Table 1. U.S.-Vietnam Merchandise Trade
(millions of dollars)
Total Trade
U.S. ImportsU.S.Trade
fromExports toBalanceChange
Vi e t nam Vi e t nam Vol u m e from
prior yr.
199450.5172.2222.7 — 121.7
2000 827.4330.51,157.9 — -496.9
2001 1,026.4393.81,420.223%-632.6
2002 2,391.7 551.9 2,943.6 107% -1,839.8
2003 4,472.0 1,291.1^a 5,763.1 96% -3,180.9
2004 5,161.1 1,121.9^a 6,283.0 9% -4,039.2
2005 6,522.3 1,151.3 7,673.6 22% -5,371.0
Jan - Oct. 20055,503.5876.06,379.5 — -4,627.5
Jan - Oct. 20067,224.6891.38,115.927%-6,333.3
Major Imports clothing, footwear, wooden furniture, frozen shrimp, crude oil,
from Vietnamcashew nuts, coffee
Major Exportsaircraft, mining equipment, electronic machinery, steel wire, raw
to Vietnamcotton, plastics
^Source:^{U.S. In}^tern^ation^a^{l T}^r^{ade C}^o^m^mⁱ^s^sⁱ^on^{. Data are f}^o^{r m}^e^rch^aⁿ^d^is^{e trade on}^{a cu}^s^t^om^s^basⁱ^s^.
^{a. U.S. ex}^ports^f^r^om^{2003 in}^clu^d^{e Vietn}^a^m^Aⁱ^rlin^es^’^$700^m^illion^pu^rch^a^s^e^of^s^e^v^e^{ral B}^o^ein^g^777s^.
^{U.S. aircraf}^t^ex^ports^{to Vietn}^a^m^w^e^re^arouⁿ^d^{$350 m}^illioⁿⁱⁿ²⁰⁰⁴^an^{d 2005, an}^{d dropped to}
^f^e^w^e^{r th}^an^{$5 m}^illionⁱⁿ^th^{e f}ⁱ^rs^{t eig}^h^t^m^oⁿ^t^h^s^of^2006.

¹ Vietnamese Ministry of Planning and Investment, The Impact of the U.S.-Vietnam Bilateral
Trade Agreement on Overall and U.S. Foreign Direct Investment in Vietnam, (Hanoi:
National Political Publisher, 2005). USAID provided funding and technical support for the
development of the Vietnamese report. Economist Intelligence Unit, Vietnam Country
Report, April 2006; USTR, 2006 National Trade Estimate Report on Foreign Trade
Barriers, March 31, 2006.

In comparison to imports from Vietnam, growth in U.S. exports to Vietnam has
been modest, and since 2003 they have been concentrated mainly in aircraft. Indeed,
U.S. exports to Vietnam have fallen since 2003, largely because shipments of aircraft
and aircraft parts have decreased.
Trade in Apparel
Imports of clothing from Vietnam have been a major issue for U.S. apparel
manufacturers before, during, and after the negotiations over Vietnam’s WTO
accession. Nearly half of the increase in U.S.-Vietnam trade since 2001 has come
from a sharp rise in clothing imports from Vietnam, which totaled $2.7 billion in

2005. This contrasts with less than $50 million in 2000 and 2001. By dollar value,

apparel (excluding footwear) now represents about 40% of total U.S. imports from
Vietnam, which accounted for 4.3% of total U.S. clothing imports in 2005, compared
with 0.1% in 2001 (before the 2001 BTA went into effect) and 1.4% in 2002.
Increases in U.S. imports of Vietnamese apparel continued well into 2006.
Since 2001, Vietnam’s apparel exports to the United States have increased
more rapidly than U.S. clothing imports from China. The latter have grown faster
after import quotas on textiles and apparel for WTO members expired on January 1,
2005; the continued rise in Vietnamese exports of apparel, however, suggests
continuing competitiveness of Vietnamese-produced clothing. Although the dollar
amount of its clothing exports to the United States is far less than that of China,
Vietnam is the sixth largest exporter of apparel to the United States at about the same
order of magnitude of such exporters as India, Indonesia, and Bangladesh, whose
clothing exports to the United States also have been rising rapidly. Mexico’s apparel
exports to the United States, almost equal to those of China in 2001, actually have
decreased since then; and apparel exports to the United States by Hong Kong,
Honduras, the Dominican Republic, and the Philippines also have fallen or risen
slowly (see Appendix A).
The growth in U.S. imports of Vietnamese apparel from 2001 to 2002 and in
subsequent years has been fairly widespread among product groups, but with outer
garments (rather than undergarments and T-shirts, for example) accounting for much
of the totals. Thus, trousers, coats, jackets, and other lightweight outer garments
accounted for more than half of Vietnamese exports of clothing to the United States
in 2005 (see Appendix B). In contrast to textile and apparel trade with a number of
other countries, the United States imports very small quantities of non-apparel textile
end-products from Vietnam. Also, U.S. apparel exports to Vietnam are relatively
minimal — equal to less than 1% of imports of apparel from Vietnam in 2004 and

2005 on a dollar basis.

The post-2001 surge in clothing imports from Vietnam followed the granting
by the United States of conditional normal trade relations (NTR) status to Vietnam
in December 2001 as per the July 2001 BTA. Such status greatly reduced U.S. tariffs
on most imports from Vietnam and led to the very large increase in exports of apparel
to the United States. Many Members of Congress had urged the Administration to
negotiate a special bilateral textile agreement to address this threat. An April 2003
agreement between the United States and Vietnam maintains quotas on 38 categories
of Vietnam’s clothing exports with the quota-levels increasing annually.

Intellectual Property Rights (IPR)
Beginning in 2002, the Bush Administration has annually placed Vietnam on
its “Special 301 watch list” for allegedly poor protection of intellectual property
rights, particularly in the areas of music recordings and trademark protection.² The
BTA required Vietnam to make its IPR regime WTO-consistent by the end of 2003.
The United States Trade Representative’s 2006 report on foreign trade barriers states
that Vietnam has made “considerable progress” in establishing the legal framework
for IPR protection, singling out the passage of a new intellectual property law in
November 2005. Despite these efforts, the government’s enforcement of IPR
protection “remains extremely weak,” according to the USTR report, which cites
industry estimates that piracy rates for software, music, and videos run over 90
percent.³ The International Intellectual Property Alliance (IIPA) estimated U.S. trade
losses from Vietnam piracy at $42.8 million in 2005.⁴
U.S. Bilateral Economic Assistance to Vietnam⁵
As the U.S.-Vietnam normalization process has proceeded, the United States has
eliminated most of the Cold War-era restrictions on U.S. aid to Vietnam, and U.S.
assistance has increased markedly since around $1 million was provided when
assistance was resumed in 1991. U.S. assistance reached an estimated $60 million
in FY2005, about three times the level in FY2000. By far the largest component of
the current U.S. bilateral aid program is health-related assistance — particularly
spending on HIV/AIDS treatment and prevention — which amounted to nearly $40
million in FY2005. Vietnam is a “focus country” eligible to receive increased
funding to combat HIV-AIDS under the President’s Emergency Plan for AIDS Relief
(PEPFAR).⁶ In recent years, some Members of Congress have attempted to link
increases in non-humanitarian aid to progress in Vietnam’s human rights record. (See
the “Human Rights” section below.)

² “Special 301” refers to Section 182 of the Trade Act of 1974. Since the start of the
Special 301 provision in 1989, the USTR has issued annually a three-tier list of countries
judged to have inadequate regimes for IPR protection: (1) priority foreign countries are
deemed to be the worst violators, and are subject to special investigations and possible trade
sanctions; (2) priority watch list countries are considered to have major deficiencies in their
IPR regime, which merit bilateral attention in these areas; and (3) watch list countries,
which maintain IPR practices that are of particular concern, but do not yet warrant higher-
level designations.
³ USTR, 2006 National Trade Estimate Report on Foreign Trade Barriers, March 31, 2006.
⁴ [http://www.iipa.com]
⁵ For more on U.S. aid to Vietnam, see CRS Report RL32636, U.S. Assistance to Vietnam.
⁶ Vietnam qualified for the designation in part because of its demonstrated commitment to
fighting the epidemic on its own and because of the competency of its medical institutions.
Vietnam is estimated to have about 100,000 people living with the HIV-AIDS virus, a
number that is projected to grow significantly.

The Jackson-Vanik Amendment and
Vietnam’s NTR Status
“Normal trade relations” (NTR), or “most-favored-nation” (MFN), trade status
is used to denote nondiscriminatory treatment of a trading partner compared to that
of other countries. In practice, duties on the imports from a country that has been
granted NTR status are set at lower rates than those from countries that do not receive
such treatment. Thus, imports from a non-NTR country can be at a large price
disadvantage compared with imports from NTR-status countries.
The Jackson-Vanik Amendment
Section 401 of Title IV of the Trade Act of 1974 requires the President to
continue to deny nondiscriminatory status to any country that was not receiving such
treatment at the time of the law’s enactment on January 3, 1975, but established a
procedure (the Jackson-Vanik amendment) to restore MFN status. In effect this
meant all communist countries, including Vietnam, except Poland and Yugoslavia.⁷
Section 402 of Title IV, the so-called Jackson-Vanik amendment, denies the
countries eligibility for NTR status as well as access to U.S. government financial
facilities, such as the Export-Import Bank and the Overseas Private Investment
Corporation (OPIC), as long as the country denies its citizens the right of freedom of
emigration.
These restrictions can be removed if the President determines that the country
is in full compliance with the freedom-of-emigration conditions set out under the
Jackson-Vanik amendment. For a country to maintain that status, the President must
reconfirm his determination of full compliance in semiannual reports (due by June
30 and December 31) to Congress. His determination can be overturned by the
enactment of a joint resolution of disapproval concerning the December 31st report.
The Jackson-Vanik amendment also permits the President to waive full
compliance with the freedom-of-emigration requirements if he determines that such
a waiver would promote the objectives of the amendment, that is, encourage
freedom of emigration. This waiver authority is subject to annual renewal by the
President and to possible congressional disapproval via a joint resolution.
Before a country can receive NTR treatment under either the presidential
determination of full compliance or the presidential waiver, it must have concluded
a bilateral agreement that provides for, among other things, reciprocal extension of
NTR or MFN treatment. The agreement and a presidential proclamation extending
NTR status cannot go into effect unless a joint resolution approving the agreement
is enacted. That legislation is to be given fast-track consideration as per provisions
of Title IV of the Trade Act of 1974, as amended.

⁷ MFN status had been initially suspended for the Soviet Union all areas under the control
of international communism (except Yugoslavia) since 1951, as required by the Trade
Agreement Extension Act of 1951. MFN status for Poland was restored in 1960. This
authority was superceded first by the Trade Expansion Act of 1962 and then Title IV of the
Trade Act of 1974, as amended.

Vietnam’s NTR Status
President Clinton first granted Vietnam a waiver of the Jackson-Vanik
requirements in 1998. That waiver has been upheld since that time. From 1998 to
2002, resolutions disapproving the waivers failed in the House. Disapproval
resolutions were not introduced in 2003, 2004, or 2005. The presidential waiver gave
Vietnam access to Export-Import Bank credits and OPIC programs, but Vietnam was
ineligible to receive NTR status until the United States and Vietnam entered into a
bilateral agreement per the requirements under Title IV. In July 2000, the two
countries signed a bilateral trade agreement (BTA). The agreement went into effect
after the Congress and Vietnam’s National Assembly approved it in 2001. The
President signed it into law (P.L. 107-052) on October 16, 2001. On December 10,

2001, conditional NTR for Vietnam went into effect.

Of the countries that have been covered by the Jackson-Vanik amendment only
Cuba and North Korea are not accorded U.S. NTR status at all. Besides Vietnam,
Belarus and Turkmenistan are granted conditional NTR status under the President’s
waiver authority. Azerbaijan, Kazakhstan, Moldova, Russia, Tajikistan, and
Uzbekistan are granted conditional NTR under the full compliance provision of the
Jackson-Vanik amendment. All other communist and former communist countries
have been granted PNTR. Ukraine was granted PNTR on March 23, 2006. President
Bush proclaimed PNTR for Vietnam on December 29, 2006.
Implications of PNTR on the U.S.-Vietnam Relationship
PNTR for Vietnam does not have any direct impact on U.S.-Vietnam trade
relations. Because Vietnam had conditional NTR, its imports had already been
receiving non-discriminatory treatment; and therefore, U.S. importers of Vietnamese
products were charged the lower, concessional (MFN) tariff rates.
PNTR does not affect Vietnam’s status as a “nonmarket economy” as regards
to U.S. antidumping laws. Vietnam had sought but failed to get U.S. removal of the
“non-market economy” designation as part of the agreement on WTO accession.⁸
For Vietnam and for U.S. businesses that want to conduct business with and in
Vietnam, PNTR provides a sense of predictability. No longer is Vietnam’s trade
status with the United States be subject to annual reviews and possible termination.

⁸ Because Vietnam would still be designated a “nonmarket economy,” in U.S. antidumping
duty (AD) cases against Vietnam, AD margins are used using a methodology that invariably
leads to higher AD duties than is the case with market economies. The nonmarket/market
economy status is determined by the International Trade Administration at the U.S.
Department of Commerce after reviewing several criteria — the extent to which a country’s
currency is convertible, its wage rates are determined by free bargaining between
management and labor, joint ventures or foreign investment are permitted, the government
owns the means of production, and the government determines prices.

In addition to the practical commercial effects, PNTR has politically symbolic
implications. It places U.S. relations on a higher plane. The Jackson-Vanik
requirements are viewed by many of the countries that are subject to them as an
outdated legacy of the Cold War when U.S. foreign policy was designed to limit
Soviet influence, and trade policy was subservient to those foreign policy objectives.
U.S. policy now is to expand relations with many of the those countries, and reflects
the changing climate in U.S. relations with former Cold War adversaries.
The WTO Accession Process and Vietnam’s Status
Vietnam applied to join the WTO on January 1, 1995. Vietnam is scheduled to
officially join the WTO on January 11, 2007. The following sections provide an
overview of the process that Vietnam went through in order to accede (join).
The Accession Process
The WTO’s membership of 149 countries and customs areas spans all levels of
economic development, from the least developed to the most highly developed
economies. The WTO came into existence in January 1995 as a part of the
agreements reached by the signatories to the General Agreement on Tariffs and Trade
(GATT). The WTO’s primary purpose is to administer the roughly 60 agreements
and separate commitments made by its members as part of the GATT (for trade in
goods), the General Agreement on Trade in Services (GATS — for trade in services),
and the agreement on trade-related aspects of intellectual property rights (TRIPS).
The membership in the GATT/WTO has grown exponentially. The GATT was
originally founded in 1947 by 23 countries, and the WTO now has 149 members,
accounting for around 90% of world trade. Among the most recent entrants are
China and Taiwan, which joined on December 11, 2001, and January 1, 2002,
respectively, Armenia, which joined on February 5, 2003, the Former Yugoslav
Republic of Macedonia, which joined on April 4, 2003, Cambodia and Nepal which
joined in 2004. The most recent entrant is Saudi Arabia, which joined on December
11, 2005. Vietnam will join on January 11, 2007. Ukraine is also near completion
of its accession process.
Membership in the WTO commits its members to fundamental principles in
trade with other members, including:
^!Most-favored nation (MFN) treatment : The imports of goods and
services originating from one member country will be treated no less
favorably than imports of goods and services from any other member
country. MFN is to be unconditional. In practical terms, this means
that in most cases a country cannot apply a higher import tariff to a
good from one member country than it applies to like goods from
any other member country.
^!National treatment: Imports of goods and services are treated no
less favorably than like goods and services produced domestically.

In practical terms this means that governments cannot discriminate
against imports in the application of laws and regulations, such as
regulations to protect consumer safety or the environment.
^!Transparency: Government laws and regulations that affect
foreign trade and investment are to be published and available for
anyone to see. Procedures to implement the laws and regulations
are to be open.
^!Lowering Trade Barriers Through Negotiations: Since the
GATT’s creation, its members have conducted eight rounds of
negotiations to lower trade barriers. At first these negotiations
focused on lowering tariffs. Over time, the rounds have broadened
GATT/WTO coverage to include nontariff barriers, such as
discriminatory government procurement practices, discriminatory
standards, and trade-distorting government subsidies. The last
completed round, the Uruguay Round (1986-1994), resulted in the
most ambitious expansion of rules to cover, for the first time, trade
in agricultural products and services and government policies and
practices pertaining to intellectual property rights protection and
foreign investment regulations that affect trade. The current round,
the Doha Development Agenda (DDA), was launched in November

2001.

^!Reliance on tariffs: In order to promote predictability and openness
in commerce, the WTO requires member countries to use tariffs and
avoid using quotas or other nontariff measures when restricting
imports for legitimate purposes, such as on injurious imports.
^!Dispute settlement: As part of its function to administer the rules
established under the agreements, the WTO provides a mechanism
for the settlement of disputes between members where the dispute
involves alleged violations of WTO agreements. Moreover, each
member’s trade regime is reviewed by the WTO Secretariat from
time-to-time to ensure that it conforms to WTO rules.⁹
The collapse of the Soviet Union and its East European bloc and the movement
of many developing countries toward liberal trade policies have spurred interest in
joining the WTO. Article XII of the agreement that established the WTO sets out the
requirements and procedures for countries to “accede”: “Any state or customs
territory having full autonomy in the conduct of its trade policies is eligible to accede
to the WTO on terms agreed between it and WTO members.”
The accession process begins with a letter from the applicant to the WTO
requesting membership. The WTO General Council, the governing body of the
WTO when the Ministerial Conference is not meeting, forms a multilateral Working
Party (WP) to consider the application. Membership on the WP is open to any

⁹ Based on WTO background information located at [http://www.wto.org].

interested member-country. More than sixty member countries, including the United
States, are part of the WP for Vietnam’s accession.
The applicant submits a memorandum to the multilateral WP that describes in
detail its current trade regime. The applicant and the WP then negotiate to determine
what legislative and structural changes the applicant must make to meet WTO
requirements and to establish the terms and conditions for entry of the applicant into
the WTO. The WP’s findings are then included in a “Report of the Working Party”
and form the basis for drawing up the “Protocol of Accession.”
While it negotiates with the WP, the applicant must also conduct bilateral
negotiations with each interested WTO member. During these negotiations the WTO
member indicates what concessions and commitments on trade in goods and services
it wants the applicant to make in order to gain entry, and the applicant indicates what
concessions and commitments it is willing to make until the two agree and set down
the terms. The terms of the bilateral agreements are combined into one document
which will apply on an MFN basis to all WTO members once the applicant has
joined the WTO. The accession package is conveyed to the General Council or
Ministerial Conference for approval.
Article XII does not establish a deadline for the process. The length of the
process depends on a number of factors: how many legislative and structural changes
an applicant must make in its trade regime in order to meet the demands of the WP;
how quickly its national and sub- national legislatures can make those changes; and
the demands on the applicant made by members in bilateral negotiations and the
willingness of the applicant to accept those demands. The Vietnamese National
Assembly has passed, or is committed to pass, laws in response to demands from
WTO members. Because WTO accession is a political process as well as a legal
process, its success depends on the political will of all sides — the WTO member
countries and the applicant country. A formal vote is taken in the WTO that requires
a ^2/³ majority for accession, although in practice the WTO has sought to gain a
consensus on each application. The process can take a long time: China’s
application took over 15 years.
Bilateral Agreement with the United States
Vietnam’s bilateral agreement with the United States is not a free trade
agreement, such as NAFTA or CAFTA. It establishes conditions for Vietnam’s
entry into the WTO but imposes no new conditions on the United States. For that
reason it does not require congressional approval as with FTAs.
Vietnam’s agreement with the United States was the last of the 28 bilateral
agreements. Following is a summary of its contents.¹⁰
The most controversial issue, at least for the U.S. textile and apparel industry,
is what reforms would Vietnam make regarding government subsidies for its textile

¹⁰ Office of the United States Trade Representative. Trade Facts: Vietnam’s Accession to
the World Trade Organization (WTO). May 31, 2006.

and apparel industry, and what protections would the U.S. industry be given against
surges in U.S. textile and apparel imports from Vietnam.
The U.S.-Vietnam bilateral WTO accession agreement commits Vietnam to
remove all WTO-prohibited trade government export subsidies for its textile and
apparel industry by the time of accession. The agreement includes an enforcement
mechanism that is in effect for the first 12 months after Vietnam’s accession. Under
this mechanism, if the United States or any other WTO member has reason to believe
that Vietnam has not fulfilled this commitment, it could seek consultations with
Vietnam. If the consultations do not resolve the issue, then the United States (or
other WTO member) could seek the authority of a third party in the form of a neutral
WTO arbitrator who would then determine whether Vietnam is in compliance. If
the arbitrator determines that Vietnam is not in compliance, then the United States
would be authorized to re-impose those quotas on textile and wearing apparel
imports from Vietnam before Vietnam entered the WTO. Those quotas could be in
force up to 12 months. If the arbitrator does not render a decision within 120 days
of the filing of the complaint, then the United States would automatically be
authorized to impose the quotas.¹¹
Among other concessions regarding manufactured goods, according to the
Office of the USTR, Vietnam will:
^!accede to the WTO’s Information Technology Agreement (ITA)
upon accession, thus eliminating tariffs on information technology
products, such as computers, cell phones, and modems;
^! reduce tariffs on 80% of chemical products as required by the WTO
Chemical Harmonization Agreement;
^!eliminate tariffs or aircraft and engines within seven years of its
WTO accession;
^!lift the ban on large motorcycles (e.g. Harley Davidson models) and
reduce tariffs on SUVs and on autoparts;
^!eliminate tariffs on 91% of medical equipment products within five
years of accession and eliminate tariffs on 96% of imports of
scientific equipment within three years of accession;
^!bind tariffs for about 90% of the tariff lines pertaining to agriculture
and construction equipment at 5% or less and on all wood products
at an average of 4%;
^!lift restrictions on imports of commercially available goods that
include encryption technology;

¹¹ These procedures are spelled out in Section 3 of H.R. 5602.

^!reduce export duties on ferrous and other scrap metals by up to 51%
of current duty levels within five to seven years of its accession; and
^!require state-owned and controlled enterprises to a make purchases,
that are not for government use, on commercial terms.
Regarding trade in agriculture products, Vietnam has committed to:
^!reduce tariffs on about 3/4 of U.S. agricultural products (including
beef, pork, dairy, fruits, nuts, processed foods, soybean products,
cotton and hides and skins, and grains) to rates of 15% or lower from
an average applied rate of 27%;
^!adhere to the WTO agreement on sanitary and phytosanitary
measures, meaning that its measures will have to be science-based
upon accession;
^!recognize the U.S. food safety inspection regimes for beef, poultry,
and pork as equivalent to is own, thus eliminating the need for
duplicative inspections; and
^! permit imports of bone-in beef and beef offal after the signing of the
agreement (even before accession to the WTO).
The bilateral agreement also includes commitments in services trade under
which Vietnam has agreed to:
^!allow foreign banks, as of April 1, 2007, to establish 100%-owned
subsidiaries in Vietnam;
^!permit foreign securities firms to establish joint ventures with up to

49% foreign ownership as of the date of accession and 100%

foreign-owned subsidiaries five years after accession, and allow
foreign securities firms to have branches in Vietnam for some
securities activities;
^!grant national (non-discriminatory) treatment to foreign financial
firms in all financial services subsectors;
^!allow upon accession foreign-owned insurance companies to operate
100% foreign-owned subsidiaries and permit, five years after
accession, foreign insurance companies to open direct branches that
sell non-life insurance;
^!eliminate all restrictions on foreign insurance company sales of any
line of insurance product one year after accession;
^!extend national treatment to foreign insurance companies operating
in Vietnam; and

^!open its markets to foreign providers of telecommunications, energy,
express delivery, transportation, business, distribution,
environmental, and hotel and restaurant services.
During the bilateral negotiations, the two sides discussed Vietnam’s restrictions
on imports of printed media products, including Bibles. It is unclear whether the
bilateral accession agreement deals with this issue and/or whether the issue will be
discussed by the Working Party.
Vietnam’s Accession Status
The bilateral agreement with the United States was only one of 28 bilateral
accession agreements that Vietnam signed. The conditions that Vietnam has agreed
to under all the bilateral agreements apply to Vietnam’s trade with all other WTO
members, including the United States. The provisions of the bilateral agreements
were combined to become part of the protocol of accession for Vietnam.
In addition to the bilateral agreements, Vietnam had to complete the
negotiations with the 63-member WTO working party. Intellectual property rights
protection was a concern of the United States and some other working party
members. Vietnam recently passed a new IPR law and the working party members
are waiting to see the regulations on how the law will be implemented. A number
of contentious issues arose during these negotiations. For example, Vietnam had
insisted that it be granted a period of time within which its obligations under the
WTO Agreement on Subsidies and Countervailing Measures (ASCM) are phased in
rather than imposed immediately upon accession. Vietnam argued that as a
developing country it was entitled to this special and differential treatment. The
working party members resisted this demand.
Working party members also raised issue with the Vietnam government’s policy
of discriminating against companies in Vietnam that have foreign-ownership and
domestically-owned enterprises in extending importing rights. Vietnam allows
locally-owned firms to import products that are part of their product line and does not
require them to obtain an import license. Foreign-owned firms can only import
goods that are used as inputs in final production or that would be used in establishing
an enterprise. Under the 2001 U.S.-Vietnam bilateral trade agreement (BTA),
Vietnam granted U.S.-owned firms special trading rights not accorded to other
foreign-owned firms. However, as a WTO member, Vietnam can no longer
discriminate among WTO members nor between foreign and domestically-owned
firms.
Some working party members also raised the issue of Vietnam’s ban on certain
types of printed matter that contain “culturally reactionary and superstitious
material.” They are concerned that the restriction might be used to prevent imports
of Bibles.

Implications for the U.S.-Vietnam Trading Relationship
Vietnam’s accession will likely mean changes in how the two countries conduct
their trade relations. The two countries are now bound by WTO rules. In practice
this will mean, for example, that the United States will not be able to impose
unilateral restrictions on imports from Vietnam, such as quotas on apparel imports,
unless they have been sanctioned by the WTO.
In addition, the two countries will be able to use the dispute settlement body to
challenge one another’s the trade practices, if they suspect those practices violate
WTO rules. For example, Vietnam might challenge U.S. antidumping measures
against Vietnamese imports or the U.S. might challenge Vietnam’s trade-distorting
subsidies.
Overall Significance of the Issues for Vietnam and
the United States
Vietnam’s accession to the WTO arguably has been the focal point for the
general improvement and deepening of U.S.-Vietnam relations that has occurred over
the past three to five years. This trend was symbolized in June 2005, when President
Bush hosted Vietnamese Prime Minister Phan Van Khai at the White House — the
first trip to the United States by a Vietnamese head of state — and the two spoke of
their desire to move bilateral relations to “a higher plane.” President Bush also
publicly backed Vietnam’s bid to join the WTO. A variety of economic, strategic,
and historical factors have motivated the two countries to improve relations and
obtain Vietnam’s membership in the WTO.
U.S. Interests
Economically, PNTR and WTO accession for Vietnam obviously has much less
significance for the United States than it does for Vietnam given the small share in
U.S. trade (0.3%) that Vietnam occupies. Nevertheless, the twin issues can be
considered as steps in fulfilling broader U.S. trade and foreign policy objectives. In
the trade area, PNTR status for Vietnam is consistent with the policy of the Bush
Administration and the Clinton Administration before it to normalize trade relations
with former adversaries, most prominently China but also Cambodia, Laos, and the
former communist states in Eastern Europe and the former Soviet Union. Vietnam’s
accession to the WTO could help the United States manage its trading relationship
with Vietnam in that Vietnam would be obligated to WTO rules thus providing some
discipline in the relationship.
In addition, the United States has been strengthening trade ties with East Asian
countries with a free trade agreement with Singapore and free trade agreement
negotiations with Thailand, South Korea, and Malaysia. The United States is also
undertaking an initiative to strengthen economic ties with the members of the
Association of Southeast Asian Nations (ASEAN), of which Vietnam is a member,
as a counterweight to the growing influence of China.

As for Vietnam’s intrinsic economic importance to the United States, it
represents to certain U.S. export sectors a potentially large (80 million people)
developing market. For most of the past twenty years, since doi moi (renovation)
economic reforms were launched in 1986, Vietnam has been one of the world’s
fastest-growing economies, generally averaging around 7%-8% real annual gross
domestic product (GDP) growth.¹² Additionally, Vietnam’s relatively low wages and
highly educated population appeal to some U.S. multinational corporations that see
Vietnam as an important site for foreign direct investment (FDI), often as a way to
avoid an over-reliance upon factories and suppliers in China. Nike, for instance, has
an extensive presence in Vietnam. Vietnam is thought by some to be an attractive
export and investment opportunity in a variety of sectors, including computer
hardware and services, telecommunications equipment and services, and energy-
related machinery and services.¹³
In addition to fulfilling some commercial objectives, U.S. PNTR and support
for Vietnam’s WTO accession Vietnam are seen by many as tools to meet certain
foreign policy objectives. For example, they can serve important tools for the United
States to expand cooperation with a country that has an ambivalent relationship with
China. While the United States is not actively promoting the development of
multiparty democracy in Vietnam, WTO membership is believed by many to be a
important means to promote increased pluralism, accountability, and adherence to the
“rule of law” in Vietnam’s political system. PNTR also has symbolic significance
as milestone in a series of steps to normalize relations with Vietnam and to place
greater distance from the legacy of the Vietnam war that this and previous
administrations have undertaken. Finally, in the near term, President Bush attended
the Asia Pacific Economic Cooperation (APEC) summit in Hanoi in November 2006.
Vietnam’s Interests
For Vietnam, it is believed that joining the WTO will have significant economic
effects, despite the fact that Vietnam already enjoys NTR status with its major trading
partners, including the United States. An important example is Vietnamese clothing
industry, which is expected to experience a significant boost in exports when
Vietnam joins the WTO.¹⁴ In 2005, the apparel industry’s contribution to Vietnam’s
total exports was about 15%. WTO entry is expected to give a boost to inward FDI,
by further entrenching and expanding not only Vietnam’s integration into the global
economy but also its own domestic economic reforms. U.S. companies have been

¹² By the mid-1980s, disastrous economic conditions led the country to adopt the doi moi
economic reforms. Under doi moi, the government gave farmers greater control over what
they produce, abandoned central state planning, cut subsidies to state enterprises, reformed
the price system, and opened the country to foreign direct investment.
¹³ U.S. and Foreign Commercial Service and U.S. State Department, Doing Business In
Vietnam: A Country Commercial Guide for U.S. Companies, March 6, 2005.
¹⁴ Economist Intelligence Unit, Vietnam Country Report, April 2006. January 1, 2005 saw
the expiration of the global system of import quotas on textile and apparel products for
WTO members. Until Vietnam joins the WTO, its clothing industry generally is considered
to be at a disadvantage compared with its competitors that operate under quota-free trade
in textiles and apparel.

major investors in Vietnam. Since 1988, U.S.-related FDI has been over $2.5 billion.
From 2002-2004, U.S. companies invested more in Vietnam than firms from any
other country.¹⁵
Additionally, joining the WTO fits Vietnam’s broader economic strategy. Since
the late 1980s, Vietnam has become increasingly dependent upon foreign trade in
general, and in particular with the United States, which is now Vietnam’s largest
export market. (See Table 2 and Table 3) In the 1990s and early 2000s, as Vietnam
deepened its integration into the global economy and as global trade rules expanded,
Vietnam was forced to commit to an “open market industrialization” strategy. By
entering into a bilateral trade agreement (BTA) with the United States (a condition
for obtaining conditional NTR from the United States), by pushing to join the WTO,
and by participating in the ASEAN Free Trade Area (AFTA), Vietnam is attempting
to achieve its goal of becoming an industrialized country by 2020 in effect without
the benefits of protectionism and subsidization that the East Asian tigers employed
in an earlier era.¹⁶ A major presumed motivation for continued economic reforms is
finding employment for the over 1 million new entrants to the labor force every year.
Indeed, job creation is perhaps is the key to the vibrancy of the ruling Vietnamese
Communist Party (VCP), as economic growth increasingly becomes its main source
of legitimacy.
Table 2. Vietnam’s Growing Dependency on Trade
1991 1996 2001 2005
Export/GDP Ratio24%30%46%62%
Imports/GDP Ratio25%42%44%65%
Total Trade/GDP49%72%90%127%
Ratio
^Source:^Derⁱ^v^e^d^f^r^o^m^Ecoⁿ^o^m^{ist I}ⁿ^tellig^en^{ce Un}^{it Co}^uⁿ^t^r^y^Rep^o^r^t,^v^a^rⁱ^o^u^s
^y^ears^.

¹⁵ Vietnamese Ministry of Planning and Investment, The Impact of the U.S.-Vietnam
Bilateral Trade Agreement on Overall and U.S. Foreign Direct Investment in Vietnam,
(Hanoi: National Political Publisher, 2005). USAID provided funding and technical
support for the development of the Report. Economist Intelligence Unit, Vietnam Country
Report, April 2006.
¹⁶ Steve Parker, of the U.S.-Vietnam STAR Project, is the source for this insight during
conversations held in October 2003 with Mark Manyin.

Table 3. Vietnam’s Growing Dependency on Trade
with the United States
199620012004
Percentage of Vietnam’s Total
Exports Going to the U.S.3.6%7.2%18.8%
Vietnam’s Exports to U.S. as a
Percentage of Vietnamese GDP1.3%3.3% 9.7%
^Source:^Derⁱ^v^e^d^f^r^o^m^Ecoⁿ^o^m^{ist I}ⁿ^tellig^en^{ce Un}^it^Co^uⁿ^t^r^y^Rep^o^r^{t, v}^a^rⁱ^o^u^s
^y^ears^.
Entry into the WTO appears to have broad support in leadership circles in
Vietnam, despite the economic hardship that is expected to come to Vietnamese
state-owned enterprises and private firms facing reduced state subsidies and
increased competition from abroad. Hanoi’s decision to sign the BTA in 2000
appears to have been a cathartic moment for domestic debates about economic
policy. Prior to the signing of the BTA, the reformist momentum was widely
observed to have dissipated, in large measure due to perhaps the worst infighting and
political deadlock Vietnam had experienced since reunification. The deadlock can
be simplified as disagreements between reformers and conservatives over how far to
continue the economic reforms and concomitant integration into the international
community. Many conservatives feared that economic rationalization would
increase unemployment, in particular by forcing the government to curtail subsidies
to state-owned enterprises. Conservatives also felt that economic reform would
affect Vietnam’s sovereignty and undermine the “socialist foundations” of the
country’s economic and political systems and thereby erode the VCP’s monopoly on
power. Vietnam’s consensus-based decision-making style, combined with the
absence of any paramount leader, only exacerbated the effect of these divisions.
These arguments were brought to a head during the debate over whether to sign
the BTA with the United States, a decision that took more than a year after an
agreement in principle had been reached. The BTA broke the policymaking logjam
a new political consensus emerged in favor of reform that new leaders endorsed at
VCP’s 9th Party Congress in 2001. In short order after signing the BTA, the
government enacted a series of measures, including passing a new Enterprise Law
to give a boost to privately-owned businesses, passing a constitutional amendment
giving legal status to the private sector, reducing red tape, creating unprecedented
transparency rules for prior publication of new rules and regulations, and for the first
time giving party members the green light to engage in private business. In sum,
many observers agree that for the foreseeable future, Vietnam has embraced deeper
integration into the global economy as the key to the country’s economic policy.
Issues Regarding PNTR for Vietnam
As the debate over PNTR for Vietnam and discussion of Vietnam’s accession
to the WTO proceeded, a number of issues were raised. Because PNTR and WTO
accession are ostensibly about trade, some of the debate centered on trade-related

issues. Probably the most controversial issue was Vietnam’s exports of wearing
apparel. But the debate also touched on non-trade, non-economic issues.
Imports of Vietnamese Apparel
The accession agreement contains no restrictions on Vietnamese clothing
exports to the United States, but Vietnam agreed to terminate all funding under a
major textile subsidy program upon the date of formal U.S. and Vietnam government
approval. Textile and apparel quotas now applied to Vietnam will be removed upon
accession; Vietnam has agreed to eliminate all of its WTO-prohibited textile/apparel
subsidy programs by the date of accession; and textile and apparel quotas can be re-
imposed for one year if Vietnam does not eliminate textile and apparel subsidy
programs.
U.S. textile groups had pushed for either the extension of current import quotas
on Vietnam’s textile and apparel exports not subject to WTO disciplines, or the
creation of a safeguard mechanism similar to the one included in China’s accession
agreement. Among the major elements of that agreement were (a) the United States
(and other WTO members) retain the right to impose safeguard measures specifically
applying to textiles and apparel through the end of 2008, allowing continuation of
some quotas in cases where a surge in Chinese exports cause or threaten to cause
market disruption to domestic producers, and (b) China will significantly lower its
tariffs on a wide range of textile and apparel products, and not impose new nontariff
barriers.¹⁷
The industry wanted the accession agreement to allow restraints to be imposed
in the future in the event of a surge of imports of apparel from Vietnam, but with
streamlined procedures that would promote quicker action. That safeguard would be
lifted once Vietnam eliminated its export subsidies. U.S. officials reportedly have
insisted that such an issue must be addressed in the multilateral working party
negotiations, without making a specific commitment to do so, according to informed
sources.¹⁸ Under the industry’s proposal the restrictions would stay in place until
Vietnam eliminates its export subsidy programs.
It is unlikely, however, that future increases in Vietnamese exports of clothing
to the United States would be as rapid as they have been recently. Because Vietnam
has not been a WTO member, many observers believe that the expiration of import

¹⁷ To ensure that the WTO agreements would fully apply between the United States and
China (once China joined the WTO), P.L. 106-286 was enacted (October 10, 2000) creating
mechanisms to monitor China’s compliance with WTO and other trade agreements, and
authorizing the President to grant China permanent normal trade relations (PNTR) status
after it joined the WTO. China officially joined the WTO on December 11, 2001, and the
President extended PNTR status to China on December 27, 2001. P.L. 106-286 also requires
the U.S. Trade Representative (USTR) to annually issue a report assessing China’s
compliance with its WTO trade obligations.
¹⁸ “USTR Cool to Textile Industry Demands for Vietnam Safeguard,” Inside U.S. Trade,
May 5, 2006. “U.S., Vietnam Reach Bilateral WTO Agreement; Textile Groups Blast Pact,”
International Trade Reporter, May 18, 2006.

quotas on textile and apparel products for WTO members on January 1, 2005, put
Vietnam’s apparel industry at a disadvantage versus its competitors that have been
operating under a quota-free regimen since that date.¹⁹
The U.S. textile and apparel industry is not satisfied and strongly opposes the
bilateral agreement because, according to industry representatives, it will allow
imports of subsidized Vietnamese textiles and apparel into the United States and
unfairly compete with U.S. producers. Auggie Tantillo, the president of the
American Manufacturing Trade Action Coalition said:
The U.S. textile industry explicitly told the Administration that it would not
support any agreement with Vietnam that did not include adequate safeguards
because Vietnam has a non-market communist economy with a heavily
subsidized state-owned textile industry just like China. There are no adequate
safeguards in this deal. In its present form, we are left with no choice but to urge²⁰
Congress to oppose this flawed agreement.
USTR officials, when asked why the agreement does not include a safeguard
mechanism similar to one included in the agreement with China, have responded that
while textile and apparel imports from Vietnam are increasing, Vietnam is a much
smaller producer and exporter of those products than is China and would not pose the
competitive threat that China does. In addition, the officials stated that once Vietnam
has entered the WTO, the United States would have available the dispute settle²¹
mechanism with which to resolve issues with Vietnam.
Senator Elizabeth Dole (NC) and Senator Lindsey Graham (SC) placed
temporary holds on S. 3495 that would allow Vietnam to receive PNTR. The
Senators had concerns about the potential impact of Vietnamese imports on the U.S.
textile industry. They lifted their holds on September 29, 2006, after the Bush
Administration agreed to establish a mechanism to monitor imports of textiles from
Vietnam and have the Commerce Department self-initiate antidumping investigations²²
when warranted.
In contrast to the criticism by U.S. apparel manufacturers, U.S. retailers and
apparel importers supported the negotiations and approved of the accession
agreement, seeing it as an opener to lower-priced merchandise, an enforcer of a more

¹⁹ Despite this disadvantage, however, the value of Vietnamese clothing exports to the
United States increased from 2004 to 2005 by just over 6%, whereas imports of clothing into
the United States from all countries increased by around 6.8%. (Percentages were computed
using the Harmonized Tariff System codes 61, 62, 63, and 65)
²⁰ American Manufacturing Trade Action Coalition. Press Statement. Bush Administration
Reaches WTO Accession Agreement with Vietnam. U.S. Industry Will be Big Losers. May

15, 2006.

²¹ Office of the United States Trade Representative. Conference Call on the U.S.-Vietnam
Bilateral WTO Accession Agreement on Market Access on May 14, 2006. Transcript
released on May 15, 2006.
²² “Dole, Graham Withdraw Holds on Vietnam Trade Bill,” September 29, 2006 Press
Release from the Offices of Senators Elizabeth Dole and Lindsey Graham.

level playing field, and a reducer of uncertainty. Thus, both the United States
Association of Importers of Textiles and Apparel and the National Retail Federation
issued press releases praising the agreement.²³ However, these and other groups of
retailers have raised concerns regarding the Bush Administration’s initiative to
monitor apparel imports from Vietnam and self-initiate antidumping investigations.
In an October 11 letter to Commerce Secretary Carlos Gutierrez and USTR Susan
Schwab, the groups implied that they are prepared to withdraw their support if their
concerns are not addressed.²⁴ Relatedly, in early November, Senators Dianne
Feinstein (CA) and Gordon Smith (OR) reportedly sent a letter to U.S. Trade
Representative Susan Schwab and Commerce Secretary Carlos Gutierrez raising their
concerns about the Administration’s move and asking for a response to the letter
before the Senate votes on the PNTR bill. According to one source, retailers and
importers wanted a commitment in writing that when considering whether to self-
initiate an anti-dumping investigation, the Commerce Department only will consider
the impact of Vietnamese imports on makers of apparel, and not makers of apparel
inputs, and that the U.S. only will look at like and comparable products.²⁵
Human Rights and Religious Freedom²⁶
In recent years, Congress has devoted considerable attention to Vietnam’s
human rights record Vietnam is a one-party, authoritarian state ruled by the
Vietnamese Communist Party (VCP). Since at least the late 1990s, the VCP appears
to have followed a strategy of generally relaxing most restrictions on most forms of
personal and religious expression while selectively repressing individuals and
organizations that it deems a threat to the party’s monopoly on political power.
Vietnamese living in the country’s urban areas generally enjoy wide and expanding
latitude to exercise their civil, economic, and religious liberties. In contrast,
conditions are more restrictive in more rural areas, particularly in the country’s
Central Highlands and northwestern regions. The government has cracked down
harshly on anti-government protests by various ethnic minority groups, most
prominently the Montagnards in the country’s Central Highlands, where clashes
between protestors and government security forces have flared periodically since
2001. Both areas are populated by ethnic minority groups, among which are many
who belong to non-registered Protestant denominations.
Many observers have pointed to evidence of improvements in the general human
rights situation in Vietnam in 2005 and 2006, even as conditions remain difficult for
certain individuals, groups, and in certain regions. In the Central Highlands, there
are signs that the level of government repression has diminished since April 2004,
when thousands of protesting Montagnard tribal groups reportedly clashed violently

²³ United States Association of Importers of Textiles and Apparel. “Importers Congratulate
U.S. and Vietnam Negotiators on WTO Accession Agreement,” May 15, 2006; National
Retail Federation. “Retailers Welcome Trade Agreement With Vietnam,” May 31, 2006..
²⁴ Inside U.S. Trade. October 13, 2006.
²⁵ “Bush Administration Seeks to Clear Hurdles for Vietnam PNTR Vote,” Inside US Trade
November 10, 2006.
²⁶ For more on these topics, see CRS Report RL33316, U.S.-Vietnam Relations.

with police and local authorities. The State Department’s 2005 report on human
rights in Vietnam, released in March 2006, describes the Vietnamese government’s
human rights record “unsatisfactory,” an improvement over past reports, which had
used the term “poor.”²⁷ Also, as part of the regular U.S.-Vietnam human rights
dialogue, Vietnam in 2006 has released a number of prominent dissidents the Bush
Administration had identified as “prisoners of concern.” Vietnam also reportedly
told the United States in October that it would repeal its administrative decree
allowing detention without trial, a longstanding U.S. goal.²⁸
On the other hand, some Members of Congress have called attention to
individual human rights cases involving Vietnamese-Americans detained during trips
to Vietnam. The arrest of one Floridian, Thong Nguyen Foshee, was raised by
Secretary of State Condoleezza Rice with her Vietnamese counterparts and reportedly
has led Florida Senator Mel Martinez to place a “hold” on the Senate version of the²⁹
PNTR bill (S. 3495). Foshee and several other individuals, including two other
Vietnamese Americans, were arrested in September 2005 while visiting family
members in Vietnam on charges of plotting violence against the Vietnamese
government. After U.S. concerns were raised, Vietnamese authorities announced that
Foshee and the six other individuals would be brought to trial, ending their indefinite
detention.³⁰ On November 10, Foshee and the others were tried, found guilty, and
sentenced to 15 months in prison, with credit given for their time in detention before
the trial. This put the seven defendants in a position to be released in December
2006. On November 12, however, Foshee’s daughter reported that Vietnamese
authorities had released and deported her mother for “humanitarian reasons.”³¹ The
following day, Martinez lifted his hold. The other six defendants apparently remain
imprisoned.
Religious Freedom. Although the freedom to worship generally exists in
Vietnam, the government strictly regulates and monitors the activities of religious
organizations, and periodically has increased restrictions on certain ones.
Vietnamese law requires religious groups to join one of the officially-recognized
religious organizations or denominations. According to many reports, the
government uses this process to monitor and restrict the operations of religious
organizations. Additionally, many groups either refuse to join one of the official
religious orders or are denied permission to do so, meaning that these groups’
activities technically are illegal.
In 2004, the State Department designated Vietnam for the first time a “country
of particular concern” (CPC) — or a “severe violator of religious freedom” —

²⁷ State Department, 2005 Country Report on Human Rights Practices for Vietnam.
²⁸ P. Parameswaran, “Vietnam to Abolish Detention without Trial ahead of Bush Visit:
Official,” Agence France Presse, October 31, 2006.
²⁹ Glenn Kessler, “A Prisoner of Global Impact,” Washington Post, October 27, 2006.
³⁰ Grant McCool, “Vietnam Charges 3 U.S. Citizens with ‘Terrorism’,” Reuters, November

2, 2006.

³¹ Glenn Kessler, “Vietnam Frees U.S. Citizen Convicted of Terrorism,” Washington Post,
November 13, 2006.

principally because of reports of worsening harassment of certain groups of ethnic
minority Protestants and Buddhists. To the surprise of many, the Vietnamese
government responded by negotiating with the Bush Administration and adopting
some internal changes. After months of talks, in the spring of 2005, the United States
and Vietnam reached a controversial agreement on religious freedom, in which Hanoi
agreed to take steps that were designed to improve conditions for people of faith,
particularly in the Central Highlands. The agreement, which has not been released
publicly, enabled Vietnam to avoid punitive consequences, such as sanctions,
associated with its CPC designation. The agreement has been faulted by human
rights groups on a number of grounds, including the charge that religious persecution
continues in the Central Highlands. Vietnam was redesignated a CPC in the 2005
Religious Freedom Report.
On November 13, 2006, the State Department announced that because of “many
positive steps” taken by the Vietnamese government since 2004, the country was no
longer a “severe violator of religious freedom” and had been removed from the CPC
list. The announcement, which came two days before President Bush was due to
depart to Hanoi for the APEC summit, cited a dramatic decline in forced
renunciations of faith, the release of religious prisoners, an expansion of freedom to
organize by many religious groups, and the issuance of new laws, regulations, and
stepped up enforcement mechanisms.³² Some human rights group, including the U.S.
Committee on International Religious Freedom, disputed the factual basis of the
decision and criticized the move as premature.³³
The Vietnam Human Rights Act. Some Members of Congress have
attempted to link U.S. aid to the human rights situation in Vietnam. The most^th
prominent example, the Vietnam Human Rights Act (H.R. 3190 in the 109
Congress), proposes capping existing non-humanitarian U.S. assistance programs to
the Vietnamese government at FY2005 levels if the President does not certify that
Vietnam is making “substantial progress” in human rights, including religious
freedom.
Diplomatic and Military Issues
Prime Minister’s Trip to the United States. Vietnam and the United
States gradually have been expanding their political and security ties, though these
have lagged far behind the economic aspect of the relationship. In the past four
years, Vietnam’s leadership appears to have decided to expand their country’s
political and security ties to the United States. During Vietnamese Prime Minister
Phan Van Khai’s visit to the United States in June 2005, he and President Bush spoke
of their desire to move bilateral relations to “a higher plane,” Bush backed Vietnam’s
bid to enter the WTO, and pledged to visit Vietnam when it hosts the 2006 Asia

³² State Department Special Briefing, “Ambassador-at-Large for International Religious
Freedom John V. Hanford III on the Release of the State Department’s 2006 Designations
of Countries of Particular Concern for Severe Violations of Religious Freedom,” November

13, 2006.

³³ “USCIRF Disappointed About Removal of Vietnam from U.S. Government’s List of
Religious Freedom Violators,” USCIRF Press Release, November 13, 2006.

Pacific Economic Cooperation (APEC) summit. The two countries also signed an
International Military Education Training (IMET) agreement and announced an
agreement to resume U.S. adoptions of Vietnamese children, which Hanoi halted in
2002. Protesters, including many Vietnamese-Americans, appeared at every stop on
Khai’s trip.
Security and Military Ties. Since the late 1990s, U.S. officials have
expressed an interest in expanding security and military ties. Vietnam generally was
cool to the idea, reportedly for two reasons: certain Vietnamese officials were wary
of antagonizing China and some in the Vietnamese Ministry of Defense were
concerned about outside scrutiny of its officers for human rights abuses. Over the
past two years, however, Hanoi has become more responsive to U.S. entreaties, as
symbolized by the signing of an IMET agreement in 2005, under which two
Vietnamese officers will attend in 2006 a U.S. air force language school in Texas for
English classes. In June 2006, Secretary of Defense Donald Rumsfeld visited
Vietnam and reportedly agreed with his Vietnamese counterpart to increase military-
to-military cooperation and exchanges. According to Rumsfeld, the two sides
discussed additional medical exchanges, an expansion of U.S. de-mining programs,
and additional English language training for troops taking part in international
peacekeeping missions.³⁴ According to one report, the Vietnamese inquired about³⁵
acquiring certain U.S. military equipment and spare parts.
POW/MIA Issues
Opposition to granting PNTR to Vietnam may also come from individuals and
groups who argue that Vietnam has not done enough to account for U.S. Prisoners
of War/Missing in Action (POW/MIA) from the Vietnam War. This argument has
diminished markedly since the mid-1990s, when the United States and Vietnam
began devoting increased resources to POW/MIA research and analysis. By 1998 a
substantial permanent staff in Vietnam was deeply involved in frequent searches of
aircraft crash sites and discussions with local Vietnamese witnesses throughout the
country. The Vietnamese authorities also have allowed U.S. analysts access to
numerous POW/MIA-related archives and records. The U.S. Defense Department
has reciprocated by allowing Vietnamese officials access to U.S. records and maps
to assist their search for Vietnamese MIAs. The increased efforts have led to
substantial understanding about the fate of several hundred of the over 2,000
Americans still unaccounted for in Indochina. On September 21, 1998, U.S.
Ambassador to Vietnam Peterson told the media that “it is very, very, very unlikely
that you would expect to see any live Americans discovered in Vietnam, Cambodia,
or Laos.” Official U.S. policy, however, does not remove a name from the rolls of
those unaccounted for unless remains are identified.³⁶ During Secretary of Defense

³⁴ Office of the Assistant Secretary of Defense (Public Affairs), “Press Availability with
Secretary Rumsfeld in Vietnam,” June 5, 2006.
³⁵ Michael R. Gordon, “Rumsfeld, Visiting Vietnam, Seals Accord To Deepen Military
Cooperation,” New York Times, June 6, 2006.
³⁶ For more on the POW/MIA issue, see CRS Report RL33452, POWs and MIAs: Status and
(continued...)

Rumsfeld’s June 2006 trip to Vietnam, the two countries discussed expanding their
cooperation on recovering remains, including the possibility of using more advanced
technology to locate, recover, and identify remains located under water.³⁷
Legislation and Latest Developments
On June 13, 2006, companion bills — S. 3495 (Baucus) and H.R. 5602
(Ramstad) — authorizing permanent normal trade relations (PNTR) for Vietnam
were introduced in the Senate and the House. On November 13, 2006, under
suspension of the rules, the House voted 228-161 (Roll no. 519) in favor of H.R.³⁸

5602 but short of the two-thirds vote necessary for passage. On December 7, 2006,

Rep. Bill Thomas introduced H.R. 6406 that combined Vietnam PNTR authorization
with other trade measures, including: reauthorization of the Generalized System of
Preferences (GSP) program; reauthorization of the Andean Trade Preferences
(ATPA) program; reauthorization of textile-related provisions of the African Growth
and Opportunities Act (AGOA); authorization of trade preferences for Haiti, and a
temporary suspension of duties on 500 products. On December 8, 2006, the House
passed H.R. 6406 (212-184). Pursuant to H.Res. 1100, the bill was then coupled
with a tax-extension bill (H.R. 6111) and sent to the Senate. On December 9
(legislative day December 8) the Senate passed the combined bills (79-9). On
December 20, 2006, President Bush signed the bill into law (P.L.109-432) and, per
the law, on December 29, 2006, proclaimed PNTR for Vietnam.
In the meantime, on November 7, 2006, Vietnam completed the multilateral
component of its WTO membership bid when the WTO General Council approved
Vietnam’s accession package, the core of which is a combination of all the bilateral
agreements that Vietnam negotiated. On November 28, 2006, Vietnam’s National
Assembly ratified the deal. Vietnam is scheduled to officially join the WTO on
January 11, 2007.

³⁶ (...continued)
Accounting Issues, by Charles A. Henning.
³⁷ Office of the Assistant Secretary of Defense (Public Affairs), “Press Availability with
Secretary Rumsfeld in Vietnam,” June 5, 2006.
³⁸ Rachel Van Dongen, “Delay for Vietnam Bill in House Signals More Trouble for Bush’s
Trade Agenda,” CQ Today, November 14, 2006; Martin Vaughan, “House GOP Leaders
Look To Revisit Vietnam Vote On Wed.,” Congress Daily PM, November 14, 2006.

Appendix A. U.S. Imports of Apparel, Top 10
Countries of Origin
(millions of dollars)
Country 1997 2001 2002 2003 2004 2005
China 7,279 8,597 9,250 10,997 13,106 19,298
Mexico 5,317 8,112 7,718 7,178 6,930 6,307
Hong Kong4,0214,2783,9243,7553,9153,550
India 1,505 1,941 2,063 2,170 2,368 3,158
Indonesia 1,656 2,284 2,103 2,173 2,407 2,874
V i etnam 26 48 896 2,375 2,565 2,731
Honduras 1,689 2,438 2,503 2,569 2,745 2,686
Bangladesh 1,442 2,101 1,887 1,849 1,978 2,373
Domi nican 2,234 2,285 2,176 2,134 2,063 1,852
Republic
Philippines 1,617 1,914 1,834 1,864 1,807 1,847
^Source:^{U.S. In}^tern^ation^a^{l T}^r^{ade C}^o^m^mⁱ^s^sⁱ^on^an^{d U.S. Departm}^eⁿ^t^of^C^o^m^m^e^rce.
^No^te:^Data^are^f^o^{r m}^e^rch^aⁿ^d^is^{e trade on}^{a cu}^s^t^om^s^v^a^lu^{e bas}ⁱ^s^,^u^sⁱⁿ^g^th^e^North^A^m^erican^In^du^s^t^rial
^C^l^as^sⁱ^fⁱ^catⁱ^oⁿ^S^y^s^t^em^{. C}^o^uⁿ^t^ri^es^{are l}ⁱ^s^t^e^{d i}ⁿ^{order of}^{2005 ran}^kⁱⁿ^g^.

CRS-27
Appendix B. U.S. Imports from Vietnam of Selected Apparel Items
(millions of dollars, except where indicated)
2006: Increase
from 2005 First
Product Group199720012002200320042005Nine Months
^a
rseys, pullovers, cardigans, waistcoats, and similar articles, knitted or819550845444027%
en’s or girls’ trousers, bib and brace overalls, breeches, and shorts of1410934728235231%
ven textile fabrics
^a
s’ trousers, bib and brace overalls, breeches, and shorts of18729418821045%
ven textile fabrics
ⁱ^{ki/CRS-RL33490}s’ overcoats, carcoats, capes, anoraks (incl. ski jackets), etc.^aa611412241786%
^g/w
^s^.ortype jackets and blazers) of woven fabrics
^le^aks’ shirts of woven textile materials71139981321466%
^aa
^://wikien’s or girls’ overcoats, carcoats, capes, anoraks (incl. ski jackets),4897167133-2%
^h^ttptype jackets) of woven textile fabrics
s’ shirts of knitted or crocheted textile fabrics274511212211613%
en’s or girls’ suits, ensembles, jackets, blazers, dresses, skirts,11581129310749%
ided skirts, trousers, bib and brace overalls, breeches and shorts of knit
^aa
rments of felt and other nonwoven fabrics or of other textile fabrics233310010429%
pregnated with plastics, rubber, etc.
en’s or girls’ blouses, shirts, and shirt blouses of knitted or crocheted242681888832%
^{U.S. In}^tern^ation^a^{l T}^r^{ade C}^o^m^mⁱ^s^sⁱ^on^an^{d U.S. Departm}^eⁿ^t^of^C^o^m^m^e^rce.
^P^r^odu^{ct categ}^ories^{are bas}^e^{d u}^pon^th^{e St}^an^{dard In}^du^s^t^{rial T}^r^{ade C}^l^as^sⁱ^fⁱ^cation^.
^e^s^s^t^h^an^$500,000.